Insurance key to protecting assets

Natalia Vander Laan

Natalia Vander Laan

 

A correctly established irrevocable trust can protect one’s assets from creditors. With cautious planning, one can still benefit indirectly from the assets in the irrevocable trust. However, all ability to change the trust is surrendered after it is signed. Consequently, many find that an irrevocable trust is not an acceptable option.

On the other hand, a revocable living trust can be changed or revoked at any time during the grantor’s life. However, while it helps to avoid probate, it does not protect one’s assets from creditors.

Therefore, if a person wishes to retain control over their assets but also wants protection from creditors, an adequate liability insurance plan and coverage can supplement one’s estate plan to result in a desired outcome.

Auto coverage and homeowner’s insurance policies are the first lines of defense. Both policies protect against lawsuits for negligence resulting from personal activities. Any commercial activities would likely have to be covered by a separate policy. Thus, if a person is at fault in a car accident or a guest falls on one’s slippery driveway, a liability insurance policy, if sufficient, will cover all costs without exposing one’s assets. The exact coverage depends on the specific policy.

To be the most effective, liability insurance policy limits should be substantially larger than one’s assets. However, oftentimes the homeowner’s policy has a low limit and the auto coverage is limited to the minimum $25,000/$50,000 required by Nevada law. Those limits would likely be insufficient to cover any serious accidents. Raising the policy limits might increase premiums but doing so will often provide the peace of mind one often seeks with insurance.

A person seeking additional protection should consider an umbrella insurance policy. Umbrella insurance is extra insurance that provides protection beyond existing limits and coverages of other policies. It can provide coverage when the auto or homeowner’s insurance policies limits are exhausted and when the liability would not be covered by other policies. Sometimes, it might even cover rental properties, although oftentimes a separate commercial policy is required.

Sometimes, even a low limit insurance policy can be a sufficient deterrent to protect one’s personal assets from creditors. If a person is sued and the judgement against them is likely to be in excess of the policy limits, the plaintiff in the suit has a choice to either accept the policy limits and resolve the issue quickly or pursue expensive and lengthy litigation, with hopes of obtaining a large judgement that they might or might not be able to collect later as the personal assets might be spent already or otherwise protected. Consequently, a deterred plaintiff may choose lower policy limits over uncertain recovery.

Additionally, any person who owns a home should consider filing a homestead declaration with the county recorder of the county in which the property is located. This simple form can be obtained online. It protects one’s home from being seized and sold in the event that a money judgement is entered by the court against the homeowner. Importantly, the federal bankruptcy law acknowledges that a state law providing for a homestead exemption will be honored in most proceedings, although in certain circumstances the federal $125,000 limit may supersede state law. The protection afforded by the homestead exemption does not apply to a mortgage used to purchase or improve the property, prior liens, or legal taxes imposed on the property.

In summary, a well-designed estate plan can be supplemented with sufficient liability insurance and a homestead declaration to offer protection and peace of mind.


Natalia Vander Laan is the ower of Vander Laan Law Firm in Minden

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